Italian energy major Eni committed to boost returns to shareholders after reporting its highest net profit in at least a decade, completing a series of record-setting results for Europe’s biggest oil and gas companies following the upheaval in energy markets caused by the war in Ukraine.
Presenting its strategy on Thursday for the next three years, Eni said it would continue to increase oil and gas production, raise capital spending, double share buybacks and boost next year’s dividend by 7 per cent.
Despite the promise to increase shareholder returns between 25 and 30 per cent of cash flow from operations from 2023, Eni’s shares fell as much as 5 per cent on Thursday as investors took stock of the changes.
Adjusted net profit for the fourth quarter was €2.5bn, in line with an average analyst estimate compiled by the company but down from each of the first three quarters when it reported respective figures of €3.3bn, €3.8bn and €3.7bn. Despite a weaker performance in the final three months of the year, Eni made adjusted net profits for 2022 of €13.3bn, the highest since at least 2009, when the group started reporting the metric.
Chief executive Claudio Descalzi said the group had delivered “excellent financial and operating results” while working to secure new sources of energy for Italy and Europe to replace Russian hydrocarbons. “During the year, we were able to finalise agreements and activities to fully replace Russian gas by 2025, leveraging our strong relationships with producing states and fast-track development approach to ramp up volumes from Algeria, Egypt, Mozambique, Congo and Qatar,” he said.
Descalzi, who has run Eni since 2014, told the Financial Times in December that Europe should develop a “south-north” energy axis with Africa, rather than rely on US liquefied natural gas to replace piped supply from Russia.
Gas deliveries from Russia have fallen dramatically since its full-scale invasion of Ukraine a year ago and the EU has pledged to phase out Russian energy completely. Eni was previously among the biggest recipients of gas from Russia’s Gazprom. The disruption in energy markets caused by the invasion drove up fossil fuel prices to historic levels last year, supercharging producers’ profits and prompting windfall taxes in the UK and EU. Eni said it had already paid €1bn in Italy in 2022 due to the new levies and the equivalent of €100mn in the UK. This year it expects to pay €500mn in Italy and €330mn in the UK.
Buoyed by record profits, Eni increased planned capital spending over the next four years by 15 per cent in US dollar-terms to €37bn, more than half of which will be spent on increasing oil and gas production by 3-4 per cent a year, equivalent to about 800,000 barrels of oil equivalent by 2026. Unlike some competitors — including BP, which has committed to cut oil and gas output by 25 per cent by 2030 — Eni has continued to invest in exploration with a focus on projects that can be brought into production quickly. Descalzi said he expected the company’s production to plateau from 2030, when gas would represent about 60 per cent of output.
At the same time, like its European rivals, Eni is in the process of building out new low-carbon businesses to help reduce the company’s emissions. Last year it postponed the initial public offering of its retail and renewable power business, citing poor market conditions. Descalzi said the unit, known as Plenitude, had still been able to double its installed renewable power capacity to 2.2 gigawatts during 2022.
The company expects that to grow to 6GW by 2025 and 15GW by 2030. The Italian group is also converting some of its existing oil refineries to produce biogas and has invested in the US-based fusion energy start-up Commonwealth Fusion Systems. “Fusion energy has the potential to be an accelerator in our transformation after 2030,” he said.
(Financial Times, February 23, 2023)